Quick answer
Many cash flow problems can be eased without borrowing by speeding up money coming in and slowing or smoothing money going out. The most effective moves are invoicing immediately, taking deposits, shortening customer terms, chasing overdue invoices promptly, negotiating supplier terms, reducing slow stock, reviewing prices, cutting unused subscriptions and setting aside tax as it is collected. Funding then only needs to cover what remains.
Key points
- Collect faster: invoice immediately, take deposits, chase early.
- Pay smarter: negotiate terms and time large payments.
- Free trapped cash in stock and unbilled work.
- Fund only the gap that remains.
Borrowing is a useful tool, but it is rarely the first one to reach for. Many cash flow problems shrink dramatically with a few changes to how money comes in and goes out. The changes below cost little or nothing, and several can improve your bank balance within days. Work through them, see how much of the gap closes, and then fund only what is left. A smaller, well-sized facility costs less and is easier to repay. Better still, many of these habits keep paying off long after the immediate pressure has passed, because they permanently shorten the time between doing the work and having the money in your account.
Bring money in faster
1. Invoice the moment work is done
Every day between finishing work and sending the invoice is a day added to your cash cycle. Make invoicing part of completing the job, not a Friday afternoon task. Many accounting systems let you invoice from your phone on site. If you invoice monthly, consider moving to weekly or at each milestone.
2. Take deposits
For larger, custom or long-lead jobs, ask for a deposit before you start. It covers materials, reduces your risk if a customer pulls out and filters out time-wasters. Most customers accept a reasonable deposit for significant work, especially if you explain it clearly at the quote stage.
3. Shorten payment terms for new customers
Thirty days has become a habit rather than a rule. Fourteen days is reasonable for most small business invoices, and seven days for many services. Set shorter terms for new customers from the start, and review terms for existing customers when you next update prices. Our guide to setting payment terms covers wording and approach.
4. Make paying easy
Include clear bank details and a payment link on every invoice. Accept card payments if your customers prefer them. Remove friction such as missing purchase order numbers, incorrect business names or vague descriptions that cause invoices to be queried and delayed.
5. Chase early and politely
Send a friendly reminder a few days before the due date and another the day after. Call about anything more than a week overdue. Most late payment is disorganisation, not malice, and a polite, consistent process works. Our guide on getting customers to pay faster has a simple schedule.
6. Use progress billing on long jobs
If work runs over weeks or months, bill at stages that match your costs. Waiting until completion means funding the entire job yourself.
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Manage money going out
7. Negotiate supplier terms
Suppliers you pay reliably are often willing to extend terms from 14 to 30 days, or 30 to 45. That simple change can shorten your cash cycle significantly. Our guide to negotiating supplier terms explains how to ask.
8. Time large payments
If an insurance renewal, equipment purchase or annual subscription is due in your quietest month, ask whether it can be paid in instalments or moved. Lining up large costs with strong months smooths the account.
9. Cut unused subscriptions and services
Software seats for departed staff, duplicate tools and forgotten subscriptions add up quickly. Review every recurring charge on your statements once a quarter and cancel what you do not use.
10. Review rosters against demand
Labour is often the biggest cost. Matching rosters to busy and quiet periods, rather than habit, can save significant amounts without reducing service.
Free trapped cash
11. Clear slow-moving stock
Stock that has not sold in months is cash sitting on a shelf. Promote it, bundle it or clear it at a discount. Turning it back into cash usually beats holding it. See stock and inventory cash flow.
12. Order smaller, more often
Large orders tie up cash for longer. Where suppliers allow, order closer to when you need stock, even if the unit price is slightly higher.
13. Bill unbilled work
Service businesses often carry weeks of unbilled time. Review work in progress weekly and invoice what is complete.
Plan and protect
14. Set aside tax as you collect it
GST and PAYG withholding are not your money. Move them into a separate account with every payment and pay run. It prevents the BAS shock that sends many businesses looking for funding. See setting aside tax from every sale.
15. Review your prices
If costs have risen and prices have not, the business may be working harder for less cash. Even a small, well-explained price increase can improve cash flow more than any other single change. See pricing and margin for cash flow.
Measure the effect
Before and after making changes, run the cash flow gap calculator. Enter your current figures, then adjust payment times, costs and big bills to reflect the changes. You will see how much the gap shrinks, which tells you how much funding, if any, you still need.
When borrowing is the right answer
If, after these steps, a gap remains and the business is profitable over time, funding is a sensible bridge. A line of credit suits recurring gaps; a short-term loan suits a one-off; invoice finance suits gaps caused by business customers on terms. The work you have done will make the facility smaller, cheaper and easier to repay, and it will show a lender that the business is well managed.
If the gap remains because a normal month loses money, borrowing is not the fix. Review margins with the break-even calculator and read our guide on profit versus cash flow.
Make it a habit
Cash flow improvements fade if they are one-off efforts. Build them into routines: invoice on completion, review overdue invoices every Monday, check subscriptions every quarter and update your cash forecast monthly. A small amount of regular attention prevents most crises.
Talk to the people you owe
When cash is tight, silence is the most expensive option. Suppliers, landlords and the ATO generally respond far better to an early conversation than to missed payments. Explain the situation briefly, propose a realistic plan and keep to it. A supplier may agree to split a large invoice; a landlord may accept a short rent deferral during a renovation; the ATO may agree to a payment plan. These arrangements cost little and protect relationships you will need when the business is growing again. Keep notes of what was agreed, and follow up in writing so there is no misunderstanding later.
An illustrative example
An illustrative electrical contractor had a recurring monthly gap of around $40k. By invoicing on completion instead of at month end, taking deposits on switchboard upgrades, moving new builders to 21-day terms and negotiating 45-day terms with its main wholesaler, it cut the gap to around $15k within three months. It then set up a small line of credit for the remainder, a fraction of the facility it originally thought it needed.
Fund only what is left
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Frequently asked questions
What is the fastest way to improve cash flow?
Chasing overdue invoices and invoicing all completed work immediately usually brings cash in fastest, often within days.
Is cutting costs the best way to fix cash flow?
Cutting waste helps, but many cash flow problems are about timing rather than cost. Speeding up collections often does more than cutting costs.
Should I offer discounts for early payment?
Sometimes. Compare the discount with the cost of waiting or funding the gap. For thin-margin businesses, discounts can cost more than they save.
When should I borrow instead?
When the gap remains after improving collections and timing, and the business is profitable over time. Borrowing suits timing gaps, not ongoing losses.
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